The Euro has seen a lot of noise lately, but with the US rates rising in early Monday trading, the only direction was down.
EUR/USD
The Euro did fall initially to kick off the trading session on Wednesday as we continue to see a lot of noisy trading. I'd bring your attention to the interest rate differential between the United States and Germany. It's widening in favor of the Americans and therefore the US dollar strengthens. That's a basic tenet of FX trading but should also keep in mind that we did bounce a little bit from the 50-day EMA, so there's at least some structural support here for the Euro.
The energy situation in Europe could be a major problem and if that does continue to be the case, then you've got a scenario where the Euro is going to suffer at the hands of just a potential lack of growth. That of course would be devastating not just the Euro, but pretty much all things European.
Yield Differentials and Range-Bound Trading
As long as the interest rates in America continue to climb, there is a ceiling here. When you look at this pair from the past year or so, it's had a floor of 1.14 in the bottom of it and a ceiling of 1.1850, with the exception of a little bit of a throw over in late January.
That being said, we are closer to the top than the bottom of the range and if yields continue to do what they've done on Monday, we will see selling pressure going forward. I think ultimately you have a scenario where traders are going to continue to see each rally as a potential selling opportunity in a market that quite frankly is very bound.
I don't necessarily think we're going to see some type of massive blowout here. I just think we're staying in the range. Yields favor America, a little resistance to go above that 1.1850 level, so I'm looking for maybe a little bit more of a rally and signs of exhaustion that I can start fading.